Revenues, and the number of assets managed, hit record highs for North American financial advisors in 2017. A deeper look at the numbers, however, reveals concerning trends in pricing and new-client acquisition.

Financial advisors at North American wealth-management firms continued to ride the high tide of well-performing markets in 2017. Assets managed per advisor grew by 15 percent to a record $106 million in 2017. This significant and predominantly market-driven11.The MSCI world index grew 22.4 percent in 2017. asset growth resulted in a corresponding increase in revenues, helping advisors turn around a multiyear decline. Median revenue per advisor was $655,000 in 2017, up 12 percent year over year.

But what about the underlying drivers of the business? The results are mixed. In addition to record highs with respect to assets managed and revenue generated, advisors deepened existing relationships and accelerated their shift away from transactions and toward asset-based fees.

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Achieving breakaway growth

A wide and growing gap separates high- and low-growth advisors. The 25 percent of advisors that grew the most from 2016 to 2017 increased revenues by 37 percent, while the bottom 25 percent actually saw revenues decline by an average of 8 percent (exhibit). Looking at advisors who grew the most in 2017, certain characteristics stand out. A higher percentage of their revenue comes from fees, and they are more likely to manage assets on a discretionary basis. They added 50 percent more household relationships in 2017 than their bottom-quartile counterparts, and they had more success in attracting younger investors. They are more likely to work as part of a team than as a sole practitioner. And perhaps most notably, they were far less prone to lowering fees in 2017.

Exhibit

The growth of advisors, and ultimately the growth of their firms, is a result of individual skills and decision making—both of which can be invested in and improved. Executives looking to unlock breakaway organic growth require an end-to-end organic-growth playbook. This playbook should include client-acquisition and servicing programs, such as next-generation sales enablement, customer relationship management, and digital marketing, as well as programs that build skills and improve decision making, such as analytics-based practice-management programs, behavior-based compensation plans, and capability-building initiatives for field managers.

However, advisors continued to struggle to add new clients, particularly with younger investors. And price levels—for both fee-based and transactional business—continued a multiyear decline. These insights are based on PriceMetrix’s proprietary database, which represents more than 20 North American wealth-management firms, who service more than 12 million retail investors with more than $6 trillion in assets under management.

Struggling to add new clients

Exhibit 1

Despite strong asset and revenue growth, advisors continue to struggle to add new clients. After several years of decline in the number of new households added per advisor, 2017 did see a very modest uptick, with 7.6 new relationships per advisor, up from 7.5 in 2016 (Exhibit 1).

Behind the aggregate statistics, there is a tremendous range in performance from advisor to advisor. The top quartile, or 25 percent, of advisors who added the most new households in 2017, added 17 on average, compared with one household on average for the bottom quartile. Interestingly, previous PriceMetrix research shows that top and bottom performers look relatively similar with respect to tenure, geography, price level, and client demographics. With such a wide performance gap, and a strong link to overall practice growth, it is understandable that more firms are incorporating new client acquisition as a metric in their compensation plans.

The price for wealth advice continues to decline

Pricing on fee-based accounts continued to slide in 2017. For households with $1.0 million to $1.5 million invested, fee account pricing dropped from 1.13 percent in 2016 to 1.08 percent in 2017. The drop was a result of advisors lowering fees for both existing and new-client accounts. Fees for new accounts are lower than for existing accounts, and continue to fall, from 1.07 percent in 2016 to 1.04 percent in 2017 (Exhibit 2). The drop in fees affected households of all sizes, with steeper declines for smaller households.

Exhibit 2

Not all advisors are lowering prices

Overall in 2017, advisors realized revenue growth, while prices continued to decline. To understand the relationship between the two, we looked specifically at advisors who lowered prices in 2017. Surprisingly, only 30 percent of advisors lowered price levels year over year, while 70 percent maintained or even increased prices. The advisors who lowered their price experienced lower growth than those who maintained or increased their price, and they attracted fewer new-fee assets (Exhibit 3). Lowering prices to add assets and drive growth is generally not an effective strategy.

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